If you’ve been following recent coverage of blockchain and cryptocurrencies, you’ve probably seen coverage of Ethereum. Although the Ethereum project has only been around for a couple of years, it has become wildly popular. In fact, in CoinDesk’s recent State of Blockchain report, nearly all of the respondents — 94 percent — said they feel positive about the state of Ethereum.
So what is generating all this positive feeling?
To understand that, you need to understand that Ethereum has two parts. Like Bitcoin, Ethereum is a cryptocurrency. (Technically, the cryptocurrency is called “Ether,” but a lot of people refer to it as “Ethereum.”) Currently, Ethereum has the second highest market cap of any cryptocurrency (behind Bitcoin), and its price has been rising very quickly. In January 2017, 1 Ether was worth about $10. In June, it reached nearly $400. Obviously, that kind of rise is going to attract attention.
Unlike Bitcoin, Ethereum is also a platform for smart contracts. It offers a way for organizations or individuals to enter into contracts that are automatically fulfilled when certain conditions are met without a bank or other financial service acting as an intermediary.
Because of this smart contract capability, Ethereum has getting interest from enterprises and some of the world’s largest financial institution. And that in turn has some observers speculating that Ethereum could eventually eclipse Bitcoin as the most popular — and most valuable — cryptocurrency.
That potential has led to growing interest in Ethereum mining.
How Does Ethereum Mining Work?
Understanding Ethereum mining requires knowing the structure of Ethereum itself. As with Bitcoin, Ethereum depends on a decentralized group of computers to process and record transactions on the network. In order to add a new block of data to the Ethereum blockchain, computers need to solve a mathematical problem called a hash. If your computer is the one that solves the current hash, you earn 5 Ether. At the time of writing, 1 Ether is worth $299.32 (but as we already mentioned, the price fluctuates a lot). So solving one of those problems earns a miner just shy of $1,500 today — and it might be worth even more tomorrow.
In other words, your computer could essentially print money for you, in $1,500 chunks, without you having to do much of anything at all.
At this point, you’re probably ready to sign up. But before you get started mining Ethereum, you need to understand a few things.
First, the total amount of Ether available to mine is currently capped at 18 million per year. If you do the math, that means that no more than 49,315 Ether can be mined per day (about one every 15 to 17 seconds). In practice, however, around 30,000 new Ether total for all the miners worldwide represents a pretty good day of mining. That represents more than $8.9 million per day at today’s prices.
But in order to get a piece of that money, you’ll be competing against all the other Ethereum miners to be the first to solve a hash. Some miners have set up data centers with multiple high-powered systems. In order to be competitive, you’ll need a pretty robust system.
Because of the way Ethereum hashes work, miners need to have systems with graphics cards with specialized graphics processing units (GPUs) and a lot of memory. Experts are recommending graphics cards with at least 3GB of RAM to get started today. Those high-powered graphics cards can be expensive, and the popularity of Ethereum mining has led to a shortage in the supply.
Also, the hashes, the mathematical puzzles that the computers must solve in order to earn Ether, keep getting harder. As time goes on, you’ll need more GPUs and more memory in order to stay competitive. In addition, more time will likely pass in between solving blocks. You might go weeks or even months before you solve your first block and earn your first 5 Ether.
Plus, mining Ethereum takes a lot of electricity and generates a lot of heat. Be prepared for a huge increase in your electricity bill, which will cut into your profits.
If you would still like to get started, the steps below outline the general process. You can find much more detailed instructions on one of the many websites dedicated to cryptocurrency mining, but this gives you a broad overview.
Ethereum Mining, Step 1: Set up dedicated hardware
Theoretically, you could run your Ethereum mining software on the regular desktop or laptop you use every day. However, if you want to make money mining Ether, you want as many of your computing resources as possible to go towards solving hashes. And that means you need hardware that you don’t use for anything else.
You could purchase a brand-new computer, but that will cut into your potential profits. Many home-based Ethereum miners choose to build their own systems as a way to save cash. If you like to tinker with hardware and have a lot of spare parts around your house, building your own system might make sense. If you have an older PC lying around, a less complicated option might be to upgrade your existing hardware so that it is suitable for mining.
Whichever route you take, you’ll want to install as many graphics cards as your motherboard will take. Graphics cards with GPUs made by AMD are particularly popular among Ethereum miners, which has led to shortages in supply. If you are ordering online, you might have to wait a while.
You might also want to consider installing Linux on your mining system — one of the lightweight distributions like Lubuntu or Xubuntu is a good option, although there are also Linux distros made specifically for mining. While it’s possible to mine with a Windows PC, it’s a little bit easier with Linux. Currently, you can’t mine Ethereum from a Mac.
Ethereum Mining, Step 2: Download and set up an Ethereum wallet
Once you have your mining hardware up and running, you’ll need to install the software that will allow you to hold Ether and conduct transactions on the Ethereum network. In cryptocurrency lingo, this is called a “wallet.”
You have a whole lot of options when it comes to choosing an Ethereum wallet. The no-frills option for people who are comfortable working from the command line is Geth. Other wallets offer easy-to-use interfaces, and some can store other cryptocurrencies in addition to Ethereum. Popular choices include Coinbase, Jaxx, Mist, Exodus, or MyEtherWallet. There are dozens of wallets out there, so you’ll want to do some research to find the wallet that will work best for you.
Ethereum Mining, Step 3: Download Ethereum mining software
Your mining software is the program that will actually perform the calculations necessary to solve hashes. Just like you have a lot of options when it comes to Ethereum wallets, you also have a lot choices when it comes to mining software. A couple of the more popular are Ethminer and Claymore.
Again, you’ll need to do some research. Some of the miners support only particular GPUs, CPUs, motherboards or operating systems. You’ll need to double-check that the miner you select supports your setup.
Ethereum Mining, Step 4: Run your mining software
Now that you have everything ready, you simply need to start running your software and wait for the money to start piling up.
And wait some more.
If you’re a solo miner, it can take a long time before you earn your first payout.
Another option is to join a pool. These are groups of Ethereum miners who share their computing resources and share their money. However, a word of warning, some of these pools are a little shady. Be very careful about joining a pool, especially if you have to pay any money to join. Some of them are basically just scams. The world of cryptocurrency mining is a little bit like the Wild West during the days of the Gold Rush, and you really need to be cautious.
Ethereum Mining, Step 5: (Hopefully) Count your money
Eventually, you should start making some money, which will show up in your Ethereum wallet. If you’d like to estimate how much you might make over time, you can use one of the Ethereum mining calculators. And, you guessed it, you once again have lots of options. One of the easiest calculators to use is at 99Bitcoins, and there are other options at CryptoCompare, CoinWarz and many other websites.
No matter which calculator you use, you’ll need to know a few pieces of information in order to make them effective. First is your hash rate. This is the speed at which your mining software will be able to perform calculations, and you can find it from your mining software provider. You’ll also need to know how much power your mining hardware is using, how much electricity costs in your area and how much you spent on your system.
Is Ethereum Mining Worth It?
So should you start mining Ethereum? The answer depends on a lot of factors.
If you enjoy DIY computer hardware projects, the process of setting up your mining rig and optimizing it to maximize your profits might be a lot of fun. However, don’t expect to get rich by next weekend. Most home setups are lucky to average a few extra dollars per month.
On the other hand, no one knows what will happen with Ethereum prices. At the time of writing, 1 Bitcoin was worth more than $4,000. If the price for Ethereum were to climb that high, that would definitely change all the profitability calculations. In that situation, if you had even just a few Ether in your wallet, you might suddenly find yourself in possession of a windfall.
Of course, if you think Ethereum prices are going to rise precipitously, you might just want to buy some Ether. That requires a lot less research and work, and it could earn you a similar profit as mining. On the other hand, the price might drop considerably too, leaving you with a loss.
In the end, it all comes down to your personal preferences. If you have the appetite for the risk and the mining process intrigues you, give it a try. Just make sure you do your research and proceed with caution.